27 Payrolls in 2020
Why 27? Doesn’t 52/2 = 26? When we think of a calendar year we think of 52 weeks, but the math isn't so simple when you start looking at days in a year(s). If you were to take the number of days in a standard year (365) and divide it by 14 (the number of days in a 2 week/bi-weekly pay frequency), we get 26.071429. These fraction of days start to add up especially when a leap year arrives like in 2020. These fraction of days add up to create the situation where every 11 years an employer that pays there employees on a biweekly schedule can see 27 payrolls in a single year.
What is the impact of this extra pay period? This extra payment primarily will impact salaried employees who will receive 27 paychecks/year instead of 26. If an employer's offers of employment, state the employee's salary in an annualized amount, the employer could be in their right to re-calculate the biweekly salary amounts by 27 as opposed to the standard 26. However, if an employer's offer of employment is stated as a bi-weekly salary amount, the re-calculation might be overstepping.
What to do? There are three options for employers all of which will require extra communication with employees.
Option 1: Divide the total salary among the 27 pay periods rather than 26. This will result in smaller amounts in each paycheck & for the majority of the months, but employees in 2020 will receive 3 extra biweekly checks that will balance to the employee's agreed upon annualized compensation even if shrinks the employee's biweekly salary amount from prior years. See example:Option 2: Pay the same amount in each pay period as you did in the previous year. This will result in an effective increase in pay for salaried employees. If you do this, inform employees, so you can take credit for the increase. However, if you are an organization on a tight budget this certainly will have impacts. See example:
Option 3: Use the exact calendar-year divisor of 26.0893 or 52.1786 for weekly employees. Dividing an annual salary by 26.0893 for those paid biweekly or 52.1786 for those paid weekly could allow employers to skip the hassle of dealing with 27 payroll year adjustments. However, this method is rarely used as it causes confusion during all the years when employees are paid 26/52 times a year. This is because the math works out in most years to create a perceived shortage in pay for employees. See example:
What about employee benefit deductions? Since most health/dental/vision premiums are invoiced on a monthly basis, we suggest employers consider deducting employee portions of health premiums twice a month only regardless of 26/27 payrolls. This tends to simplify the reconciliation process and is easy to maintain as the benefit deductions can be set up to skip any third payrolls paid in a month. Any benefits that are invoiced to the employer on a per payroll basis such as AFLAC should be reviewed with your supplemental insurance broker to determine best course of action. Retirement benefits should apply to all payrolls regardless of the 26/27 issue.
What about PTO Policies Calculated on 26 payrolls? If your PTO accrual rules for Vacation, Sick, Personal/PTO are based on 26 payrolls in a year, it would be wise to review the per payroll calculations and/or "annual cap" rules to verify balances aren't over-rewarding employees.